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Philippines: Overhaul of property tax scheme to boost real estate market

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Vehicles wait in traffic in Manila with high-rises under construction in the background. NOEL CELIS/AFP

Philippines: Overhaul of property tax scheme to boost real estate market

Provinces and cities in the Philippines are losing an estimated 30.5 billion pesos ($588.68 million) in revenues annually as a result of outdated real property values, underscoring the need for valuation reforms in the real property sector, according to a unit of the Department of Finance.

In a press statement, acting Deputy Executive Director Jose Arnold Tan of the Bureau of Local Government Finance said cities could have collected as much as 23.1 billion pesos in incremental revenues from real property taxes, while provinces could have gained as much as 7.4 billion pesos if their Schedule of Market Values (SMVs) were updated and aligned with international standards.

Such reforms in the real property tax system constitute the third package of the Duterte administration’s comprehensive tax reform programme.

Finance Secretary Carlos Dominguez III said the reforms would further invigorate the real estate market, bring in more investments and generate additional revenues for local government units.

“Essentially, real estate is the most valuable asset and biggest financial resource,” Dominguez said. “But its contribution to government revenues, particularly for local governments, has remained dismal due to outdated SMVs, poor collection efficiency and tax administration and lack of uniformity in the valuation of real property.”

Tan said for provinces alone, the 7.4 billion pesos in foregone real property taxes could have built 551 public markets or 771km of roads or 7,542 classrooms or 2,155 day care centres.

The 23 billion pesos in real property taxes that cities fail to collect could have built either 513 transport terminals, 339 landfills, 1,154 satellite health centres, or 3,330 low-cost resettlement projects, he added.

Tan noted only 36 per cent of local government units have updated SMVs. The rest, which comprise 97 cities and 48 provinces, remained noncompliant in updating their SMVs, he said.

Moreover, only 60 per cent of the regional district offices of the Bureau of Internal Revenue have updated zonal values.

Under this outdated system, overvaluation usually happens when the government pays for a piece of real property, but undervaluation often occurs when it is the government’s turn to collect, according to Tan.

The system is also riddled with multiple overlapping functions as 23 national government agencies can or are required to do valuations, with each using its own system and methodology, Tan said.

This has led to disparities between market values and zonal values of 13 per cent to as wide as 94 per cent. Between the SMVs and private valuation, the disparity is from 187 per cent to 7,474 per cent, Tan said.

He said local governments often overlooked the requirement under the Local Government Code to update their SMVs and zonal values every three years because there were no existing sanctions against local officials that would compel them to comply with the law. PHILIPPINE DAILY INQUIRER/ASIA NEWS NETWORK